An interesting and little known dilemma that all private equity lenders (hard money lenders) face on a regular basis is the lack of really good qualified projects and borrowers.  Few people, investors or borrowers, realize that it is only one in dozens of loan requests received that are accepted as fundable (at least by genuine lenders).  The remainder are basically pipe dreams or rescue operations that offer little, if any real security for an investor.

Some companies (I call them fee mongers) take advantage of these dozens of worthless opportunities by charging application fees, due diligence fees, commitment fees, etc. with promises of the amazing and the inevitable.   However, these companies make a majority of their income on the desperation of applicants, and the occasional quality project that they fund as a result of what I would call industry luck. 

Genuine hard money agencies, like The Equity Experts, and Indian Nation Investments, do not charge any fees unless they perform and actually bring a loan to fruition and close.  This is the type of company that is extremely particular about what kind of project they fund, because an unfunded project is a waste of time, resources and much needed corporate income.  Therefore, particularity is critical to boutique agencies such as those listed above.  This means a constant "farming" of quality projects and a very intensive internal due diligence and filtering process that eliminates 99% of funding requests being submitted for consideration.  This creates a very strong portfolio of loans that perform in any market condition.

The result of such scrutiny is a hunger for genuine projects in which to infuse investor dollars.  So, here's the amazing paradox of such times as this.  Since money is no longer being thrown at anyone who walks by the door of a bank, most projects have found themselves turning to the private funding industry in droves.  A practice that was common 25-30 years ago, but became unpalatable by the formal financial establishment.

It's a wonderful paradox for hard money lenders of all ilks because instead of digging through a hundred or so loan applications per MONTH to qualify a couple of decent opportunities, we are now filtering hundreds of loan applications a week - what does this mean? Well, it means three things: 

1)  If you are an investor who puts money into the security of private equity lending, you are now potentially overwhelmed with a barrel-full of high-quality investment opps to choose from - with rates of return as high as 50% per annum, and equity cushions as great as 75% of the quicksale value of a property. 

2) As a borrower you have a new level of competition for money that is at a premium, and you must readjust your budget to reflect the high cost of this cyclic paradigm in acquiring funds for your project or property; and,

3)  Successful private equity agencies like those mentioned above must stoke up the fires of responsible due diligence, project marketing and investment execution in order not to miss great investments for their clients, especially since there are so many great opportunities to be had, and to keep investor's interests when they have indigenous investment opportunities knocking at their doors on a daily basis.  Yes, things have changed.  In an industry that usually has more available funds than qualified deals, we are now finding ourselves lacking qualified funds in a glut of high yield qualified opportunities!

What an interesting balance of life.  A paradox of sorts.  Thirty years ago, there were basically two types of funding, private and "A" credit institutional.  The media cries that the private funding world is only a step away from the mafia, and demands new institutional financing options. The government responds by stimulating and rewarding institutions for new funding products and the sub-prime industry is born. 

Thirty years later, the media cries wolf regarding a potential financial situation that lurks to pounce on the country; society responds by walking away from their homes because it is now no longer socially taboo to do so; the financial industry, solely blamed for the seemingly blind practice of sub-prime financing, practically collapses as a result.  

Empowered by their prophetic abilities, the media touts it's amazing insight and ability to educate regarding reality (or at least their take on it); the government takes note of the potential or actual public panic and steps in; the sophisticated financial industry is stepped on by political pride and the government's egotistical need to show constituents that they know more than the financial industry, partnering with the media to create a pressured response from the world of money and trade and the federal regulatory agencies that oversee them,  to reconstruct the greedy and failing establishment that is victimizing the flock of sheep that is our country (in spite of the fact that this same establishment has been responsible to keep our markets and economy purring amidst huge world recessions and wars.)

With new threats of over-regulation and social responsibility, banks and funding institutions shut their doors to any request short of perfect even if that request would be instrumental in the breaking of the real estate slump and the stimulation of the market.

In an effort to assuage fears that were cannibalistically created by the superpowers themselves, the result is the creation of a huge sucking void in lieu of the much needed capital required to pet and perpetuate economic growth and overall worldwide financial well-being.
 
Ironically, entrepreneurs are forced to once again turn to private sources for the ability to continue in the spirit of capitalism and its tendency to create jobs, safety and governmental health. . .

So what's the paradox?  If you haven't gotten it yet, allow me to extrapolate even further:  It seems, in the attitude of Ayn Rand's book "Atlas Shrugged", that we have returned to the primitive industrialistic battle between the powers of ignorance and the pedestrian creativity of private individuals and society's right to make decisions without external pressure.  The media and the government, each of which were established on principals of public protection, education and emboldenment, have become immovable, bullying bastions of repression and attack against both the proletariat who explores the creativite options of escaping day-to-day drudgery, moving toward profit and progress, and the practically faceless giant that is the financial establishment who was created by these bastions in an effort to help the poor retarded (yes I used the word) public from making mistakes - that's what retards need, a companion to assist in difficult (good thing we don't have a thriving consulting industry) and/or even mundane decisions.

What does this mean?  It's good for those of us who have been devoted to the simplicity and practice of private finance in spite of mockery through the years; even though it is unfortunate that our industry's good is riding on the back of those who consider themselves so much more qualified to make decisions for the masses the huge quagmires they've created, resulting in a new genesis and respect of the private funding industry. And, it's good for those who are willing to think outside of the box and put their money into investments that are as old and promen as time.

It's a sad and happy time for those of us who are genuinely committed to the integrity and promotion of the private equity lending industry, but we will remain consistent in our functionality and ability to progress society - no matter how "sophisticated" everyone else becomes.

If you are an investor of any type, and not making high yield returns with collateralized security backing up your money, then it's time to make a change.  Contact The Equity Experts at http:\\www.theequityexperts.com or 505-892-7200 and begin a whole new paradigm while this interesting paradox is fresh and active.

Until next time! 

Brandon Thienes